AMD issues Q3 warning, analysts warn on burn rate

AMD issues Q3 warning, analysts warn on burn rate

Advanced Micro Devices has lowered estimates for its third-quarter revenue, as analysts warned the company will have to secure additional financing to survive beyond the expected launch of its Hammer processors in mid-2003 if the current weakness in the PC market continues.

The company said its Q3 sales will total about $US500 million, down from estimates of slight growth from AMD's second-quarter revenue of $US600 million. Significant reductions in AMD's inventory of processors due to oversupply reduced Q3 sales, the chip maker said in a release.

AMD is struggling to manage its debt and cash flow amid a slowdown in sales of PCs. Assuming the company posts $500 million in revenue for the third quarter, and assuming the PC market grows slowly into 2003, AMD will burn through its remaining cash in five quarters through its efforts to pay off its long-term debt without dipping into its credit line, said Eric Ross, director of electronics research at market research company Investec.

"We doubt the company can survive without a substantial financing event," said Ross in a research note distributed on Thursday. AMD is burning through $US200 million in cash each quarter, he said.

The company's options include restructuring its debt, or borrowing against assets, including its Dresden, Germany, fab, Ross said. "For safety's sake, they would want to raise around $US500 million," he said.

Ross believes AMD's technology is competitive with rival Intel, but the larger chip maker is in a far better financial position. Intel has $US10.6 billion in cash available, which means the company could survive with zero revenues for five or six quarters, he said. Intel is also profitable, while AMD lost $US185 million in the second quarter of 2002.

The financial situation at AMD handicaps it in the battle against Intel for the processor market, Ross said.

"I think they've done a great job in staying competitive, but can they keep it up? If the PC market continues to be weak, and the flash market continues to be weak, that's a big problem for them. They're not going to lose much market share, and their technology is competitive, but they won't be able to make huge investments in new designs or process technologies," he said.

The company will release its third-quarter financial results on October 16.

AMD launched its fastest desktop processors yet on Tuesday, the Athlon XP 2800+ and 2700+, although the chips won't be available until late November.

The company is scheduled to release the next two major steps on its roadmap, its higher-cache Barton core and its 64-bit Hammer chips, in the first half of 2003.

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